Rupee Rises To 82.63 As Dollar Sags Ahead Of Fed's Rate Hike Path Outcome

The rupee gained on Wednesday after rising a touch in the previous session as the dollar retreated further ahead of the outcome of the Federal Reserve meeting. Still, caution prevailed in global markets as investors waited for cues on the future rate hike path. 

According to a Reuters poll of FX experts, the rupee will only partially recover some of its recent losses versus the dollar over the next year as the interest rate differential is expected to widen further along with a rising current account deficit.

Bloomberg quoted the rupee at 82.6237 per dollar after opening at 82.6537, compared to Tuesday closing of 82.7050.

"The volatility could resume from tonight ahead of major events and releases. The queue begins with the Fed as it concludes its two-day policy meeting tonight with a rate hike. Well, with a hike of 75 bps already priced in for this meeting, the focus will be on the stance for the upcoming meetings i.e. in Dec and the next year 2023," said Amit Pabari, Managing Director of CR Forex Advisors.

On Wednesday, the US dollar fell from a one-week high as traders waited anxiously for the Fed's impending rate decision, and hints about the direction of future policy.

"Asian currencies were a bit stronger as dollar index fell. The rupee was set to remain in a range of 82.40 to 83.00 as the Fed meeting enters the second day. Nobody seems to be interested in the quantum of rate hike in November which is more or less decided at 75 bps. Everyone  wants to know what the Fed's language would be for December," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

Reuters reported that the rupee was tipped to trade at around almost the same levels as the previous session's close of 82.6950.

It is a "pretty big Fed meeting" considering that the base case in recent days has shifted more towards it signalling a slowdown in the pace of tightening, a trader at a Mumbai-based bank told Reuters."If the Fed's thinking is it may be early to give that signal, expect a gap down on rupee tomorrow."

Hopes that the Fed may hint at a more modest rate hike in December have been fueled by worries about the prospects for US economic growth and actions taken by a few other developed central banks that have been dovish compared to expectations.

Data reported overnight, however, dashed expectations of a Fed switch to a slower rate of tightening. The surprising increase in US job vacancies in September indicates that there is still a high demand for labour.

"We expect the (Fed) chair to open the door to a slower pace of hikes beginning in December," Bank of America Securities wrote in a research note.

"Yet we expect the Fed to remain data dependent and emphasize cumulative policy rate tightening over any step down in pace."